This article first appeared in The Edge Malaysia Weekly on May 11, 2026 - May 17, 2026

RECORD high dividends may well be in order from Petroliam Nasional Bhd (PETRONAS) and possibly Khazanah Nasional Bhd as Putrajaya faces up to the possibility of a second monthly fuel subsidy bill of RM7 billion for May. The national oil company’s highest dividend on record was RM54 billion in 2019, which included a RM30 billion special dividend to repay goods and services tax (GST) and other income tax refunds of RM37 billion owed to individuals and businesses.

In March 2023, PETRONAS’ board approved an additional RM25 billion to bring the total dividends paid to the government to RM50 billion for 2022 — the second highest to date — when Brent crude oil averaged above US$100 per barrel (US$1 = RM4.40). That year, the national oil company’s net profit exceeded RM100 billion for the first time at RM101.6 billion and free cash flow was about RM85 billion.

Budget 2026, tabled last October, included only a RM20 billion dividend from PETRONAS and RM2 billion from Khazanah, whose 60%-owned unit M+S Pte Ltd is said to be mulling a potential divestment of Marina One for between S$5 billion and S$6 billion (S$1 = RM3.09). A sale could produce a new record dividend payout. Khazanah’s highest dividend payout was RM3 billion in 2011, when its earnings performance was bolstered by the privatisation of PLUS Expressways Bhd.

But even an additional RM35 billion to RM36 billion from PETRONAS and Khazanah may be used up in just five to six months, going by the run rate in April, our back-of-the-envelope calculations show, thus necessitating broader austerity measures, as indicated in a Treasury directive dated April 29 asking all ministries, departments and agencies to review operating expenditure and propose spending cuts by May 15, as reported by Reuters.

The Ministry of Finance may have already racked up over RM14 billion in subsidies for RON95 petrol and diesel in the first four months of 2026 alone, our calculations show.

Treasury Secretary General Datuk Johan Mahmood Merican’s estimate of Putrajaya’s fuel subsidy bill reaching RM58.4 billion — nearly four times the originally approved RM15 billion, or a shortfall of RM43 billion — implies expectations of the RON95 petrol and diesel subsidies possibly staying at RM5 billion to RM6 billion a month on average for the rest of this year.

Prime Minister Datuk Seri Anwar Ibrahim assured that the budget cuts to potentially save RM8 billion to RM10 billion would be on “luxury” or non-critical expenses and not essential services or developments in response to wider dissent on budget cuts at the health and education ministries.

“An additional RM30 billion from PETRONAS [alone] may not be enough to cover the [fiscal] gap this time around … If US-Iran come to an agreement, oil prices could fall below US$100/barrel but it will still be at US$90 levels [until supply issues are resolved],” says an observer.

Interest in the impact from the blockage of the Strait of Hormuz on PETRONAS’ earnings has grown even as global oil supermajors began announcing superb profits in recent weeks, driven by higher oil and gas prices brought about by the Iran war.

BP plc, which has reportedly been shipping some of its barrels from Abu Dhabi through the Fujairah terminal in the Gulf of Oman to avoid the Strait of Hormuz, saw its earnings double in the first three months of the year from “exceptional” trading performance. Shell plc, which beat street forecasts, said trading profits since the Middle East conflict had helped it absorb a 10% hit on its oil and gas production caused by the disruptions in Qatar.

PETRONAS has clarified that the current crisis is different. While the company should benefit from higher oil prices, group CEO Tan Sri Tengku Muhammad Taufik Tengku Aziz pointed out the substantial cost increases, including insurance premiums surging as much as 337% and freight charges being 47% to 176% higher. The Ministry of Finance has also weighed the higher cost burden due to intense global competition to secure crude oil supply and called for prudent use of fuel and energy.

It is understood that PETRONAS is incurring half a billion ringgit extra a month in “national service” to ensure petrol supply and that there is minimal disruption at retail pumps for end-consumers. This is not part of the government’s fuel subsidy refunds and the national oil company may not be able to fully recover this cost from the government, a source explains.

PETRONAS may not release financial statements until late August, if it maintains its 2025 stance of reporting half-yearly results instead every quarter previously. In the past, its first quarter results were usually released by end-May.

Historically, PETRONAS’ dividend payments go up alongside its higher free cash flow, but there have been instances where it paid out more than its free cash flow for that year, as seen in 2015, 2019 and 2020 (see chart).

While expecting the national oil company to maintain a strong financial profile, Fitch Ratings downgraded its credit rating on PETRONAS to BBB+ from A- on Dec 8, 2020, four days after downgrading Malaysia’s sovereign rating to BBB+. S&P Global Ratings and Moody’s Investor Service affirmed PETRONAS’ A- and A1 rating respectively.

In response, PETRONAS said it had been in a net cash position since 2006 but noted that its rating “will continue to be capped by that of the sovereign so long as the company sustainably generates more than 10% of the revenues of the government”. Fitch Ratings noted that PETRONAS had accounted for more than 15% of Malaysia’s state revenue over the past five years back then. In December 2025, Fitch Ratings noted that PETRONAS had accounted for 26% of government revenue on average in the past five years.

The limited fiscal space to manoeuvre was apparent in 2023 when Putrajaya had little choice but to use development expenditure to repay the US$3 billion 1MDB Global debt paper that matured in March 2023 as there was not enough revenue to pay for that additional operating expenditure that year with the special Covid-19 fund only available from 2020 to 2022. The provision to repay 1MDB debt was mentioned in the 2023 Economic and Fiscal Outlook Report.

Tellingly, subsidies and social assistance remain high after the pandemic, even though Putrajaya had managed to lower these from RM71.87 billion or 22.9% of revenue in 2023 to RM67.36 billion or 20.8% of revenue in 2024 and RM56.4 billion or 16.8% of revenue in 2025.

If fuel subsidies stay high, as widely expected with state elections around the corner, the bill for subsidies and social assistance for 2026 could hit a new peak.

For now, PETRONAS’ cash flow and gearing levels remain healthy but its net cash levels have come down over the years as it balances the need to invest for sustainable growth and dividend obligations.

Just one day before the US and Israel attacked Iran on Feb 28, the national oil company announced its intention to conduct a right-sizing exercise in the face of oversupply concerns and a muted demand outlook back then. This was after it reported a 17.6% year-on-year decline in FY2025 net profit to RM45.4 billion with oil prices averaging 14% lower at US$69.10 per barrel (US$1 = RM4.28) in 2025 versus US$80.76 per barrel (US$1 = RM4.58) in 2024.

The US Energy Information Administration (EIA) expects Brent crude oil prices to increase from an average of US$81 per barrel in 1Q2026 to a peak of US$115 per barrel in 2Q2026 before gradually falling to an average of US$88 per barrel in 4Q2026.

“We base this on the assumption that the conflict does not persist past April and that traffic through the Strait of Hormuz gradually resumes but does not return to pre-conflict levels until late 2026. Shut-in oil production [should] gradually return as flows through the strait resume and oil trade flows adjust. Given this relatively long adjustment period after flows through the strait resume, we expect oil prices will remain elevated, with Brent crude oil prices averaging US$76 per barrel in 2027, about US$23 per barrel higher than in our February forecast,” according to its Short-Term Energy Outlook (STEO) report dated April 7. The next release is on May 12.

“With the Middle East crisis now entering its third month and the official guidance indicating that spillover effects on Malaysia may become more evident around June and July, conditions remain highly fluid. We see several critical factors emerging in the coming weeks, notably progress in US-Iran negotiations, the possible implementation of stricter fuel rationing measures [amid sufficient reserves until end-June], adjustments to fuel subsidies, and clearer indications of GDP momentum and how elevated and persistent inflation may be,” UOB Bank Malaysia senior economist Julia Goh wrote in a May 7 note.

Noting a more “cautious and risk-aware tone” in Bank Negara Malaysia’s latest monetary policy committee (MPC) statement last Thursday — which acknowledged the possibility of higher commodity prices as a result of the Middle East conflict causing inflation to edge higher — Goh expects the central bank to “closely monitor developments over the next two to three months before considering any recalibration of its monetary policy stance”. “In the absence of imminent second-round inflationary pressures or a material shift in domestic demand dynamics just yet, we expect the overnight policy rate (OPR) to remain unchanged at 2.75% for now,” she adds.

Putrajaya has some room to manoeuvre. Malaysia’s stronger-than-expected GDP growth in the last quarter of 2025 helped reduce the country’s fiscal deficit to 3.7% of GDP, better than the 3.8% targeted for last year.

Budget 2026 had targeted a further reduction in fiscal deficit to 3.5% of GDP in 2026, working towards 3% in 2028. The expected shortfall of RM43 billion in fuel subsidies is about 2.1% of GDP.

Malaysia’s GDP growth is currently projected at an enviable rate of 4% to 5%, although moderating from 5.2% in 2025 and 5.1% in 2024. On Friday (May 15), attention will be on Bank Negara governor Datuk Seri Abdul Rasheed Ghaffour and chief statistician Datuk Seri Mohd Uzir Mahidin’s elaborations on prices and the economy as they unveil the actual first quarter GDP reading. The advance estimate shows Malaysia’s GDP growing at 5.3% in the first quarter of 2026. The actual 4Q2025 GDP growth of 6.3% exceeded the initial estimate of 5.7%.

Whether Putrajaya will be forced to reduce its fuel subsidies despite the state polls towards the end of the year depends on how high crude oil prices go in the coming months. Rather than increasing the price for RON95 petrol or capping the subsidies, a reduction in the subsidised quota for RON95 is seen as more likely, aided by Putrajaya’s knowledge of actual usage data.

When the Budi95 programme was rolled out in September last year, Putrajaya had estimated that 95% of people would use less than 180 litres a month and 90% of individuals would use less than 140 litres a month. When reducing the Budi95 monthly quota from 300 litres to 200 litres from April 1, the government said more than 90% of users were not affected.

Although much of the world hopes the Iran war, which began on Feb 28, will end before US President Donald Trump meets Chinese President Xi Jinping in Beijing on May 14, many are likely laying contingency plans while watching developments closely.

“It might not happen, but it could happen any day,” Trump reportedly said on March 8 after the US and Iran clashed near the Strait of Hormuz — while a fragile ceasefire was supposed to be in place to discuss an end to the war — even as the world awaits Tehran’s response to Washington’s one-page memo.

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